NRB asks traders to stop giving loans

KATHMANDU, SEP 21: 

Traders involved in selling automobiles, electronic appliances and gadgets have been formally forbidden by the central bank to provide loans to buyers.

Companies that provide loans to customers to make sales both directly or through subsidiaries have been asked by Nepal Rastra Bank (NRB) to stop doing so and leave lending activities to financial institutions.

“The Banking Act has strictly spelt out that activities like collecting deposits and providing loans can be done by licensed financial institutions only, and no seller can provide hire-purchase loans to customers,” said spokesperson of NRB Bhaskar Mani Gyanwali.

Most automobile dealers, and electronic appliances and gadgets suppliers often sell products in easy installments, and people with steady incomes can buy the goods without having to pay an initial lump sum. 

The central bank has also extended the deadline till mid-July 2014 for directors, chief executives and top management officials of financial institutions to adjust the loans already taken. However, they can obtain personal loans, education loans, home loans, hire-purchase loans, loans against government securities, and credit card loans. 

In the Unified Directives 2069, NRB has forbidden a financial institution to forward loans to directors, chief executives and top management officials of other financial institutions to minimise their risk taking behaviour. The decision had raised quite a furore in the banking community. 

Moreover, NRB has also forbidden auditors or an auditing firm partnered by a majority shareholder with more than one per cent stake in a financial institution to audit the financial institutions’ borrowing firm or individuals. “This provision will remove incidences regarding conflict of interest among auditors and the companies being audited,” pointed out Gyanwali. 

NRB has allowed class ‘D’ financial institutions to work as insurance agents for member borrowers provided they get a licence from Insurance Board. The move will help in marketing microinsurance products among rural population.

AGM clearance procedure

Nepal Rastra Bank (NRB) has introduced the AGM Clearance and Dividend Working Procedures for commercial banks that spells out the conditions and provisions regarding dividend declarations. Banks need to get their financials approved by NRB before getting it published to avoid any changes due to adjustments after being published. Likewise, financial institutions are allowed to declare cash dividend only if commercial banks have capital adequacy of 11 per cent, development banks and finance companies with 12 per cent and microfinance institutions with nine per cent. Financial institutions cannot give dividends if their net worth is negative.

Source: THT